Deck 14: Special Tax Computation Methods, Tax Credits, and Payment of Tax

Question 1

Casualty and theft losses in excess of 10% of AGI are deductible for AMT purposes.

Answer 1

True
Explanation: The AMT provisions do not require an adjustment for casualty and theft losses.

Question 2

The alternative minimum tax applies to individuals, corporations, estates, and trusts.

Answer 2

True
Explanation: The AMT applies to all types of federal income taxpayers.

Question 3

For purposes of the AMT, the standard deduction, but not the personal and dependency exemptions, is allowed.

Answer 3

False
Explanation: Neither the standard deduction nor personal and dependency exemptions are allowed for AMT.

Question 4

Reva and Josh Lewis had alternative minimum taxable income of $350,000 in 2015 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

A) $35,625.
B) $53,600.
C) $47,775.
D) $83,400.

Question 5

Harley's tentative minimum tax is computed by multiplying the AMT tax rates by her

A) taxable income.
B) alternative minimum tax base.
C) alternative minimum taxable income.
D) tentative alternative taxable income.

Question 6

In computing AMTI, adjustments are

A) limited.
B) added only.
C) subtracted only.
D) either added or subtracted.

Question 7

The alternative minimum tax applies to individuals only if it exceeds the taxpayer's regular income tax liability.

Question 8

Drake and Davina are married and file a joint return for 2015 with taxable income of $100,000 and tax preferences and adjustments of $51,000 for AMT purposes. Their regular tax liability is $16,713. What is the amount of their total tax liability?

A) $17,576
B) $39,260
C) $34,289
D) $16,713

Question 9

Jake and Christina are married and file a joint return for 2015 with taxable income of $100,000 and tax preferences and adjustments of $20,000 for AMT purposes. Their regular tax liability is $16,713. What is the amount of their total tax liability?

A) $7,072
B) $9,516
C) $16,713
D) $26,229

Question 10

A taxpayer who paid AMT in prior years, but is not subject to the AMT in the current year, may be entitled to an AMT credit against his regular tax liability in the current year.

Question 11

For purposes of the AMT, only the foreign tax credit and refundable personal credits are allowed to reduce the tentative minimum tax.

Question 12

Medical expenses in excess of 10% of AGI are deductible when computing AMT.

Question 13

In computing the alternative minimum taxable income, no deduction is allowed for

A) alimony.
B) moving expenses.
C) personal exemptions.
D) individual retirement account contributions.

Question 14

A taxpayer acquired new equipment to be used in her business this year. For AMT purposes, depreciation must be recalculated using the straight-line method over the same recovery period used for regular tax purposes.

Question 15

In computing AMTI, tax preference items are

A) excluded.
B) added only.
C) subtracted only.
D) either added or subtracted.

Question 16

A taxpayer acquired an office building to be used in her business this year. For AMT purposes, depreciation must be re-calculated using the straight-line method over 40 years.

Question 17

All of the following are allowable deductions under the alternative minimum tax except

A) charitable contributions.
B) gambling losses.
C) qualified housing interest.
D) state income taxes.

Question 18

All tax-exempt bond interest income is classified as an AMT preference.

Question 19

An example of an AMT tax preference is the excess of MACRS depreciation on equipment over depreciation computed by using the the 150% declining balance method.

Question 20

In 2015 Charlton and Cindy have alternative minimum taxable income of $130,000 and file a joint return. For purposes of computing the alternative minimum tax, their exemption is

A) $0.
B) $8,000.
C) $53,600.
D) $83,400.

Question 21

Annie has taxable income of $100,000, a regular tax liability of $21,071, a positive AMT adjustment due to limitations on itemized deductions of $20,000, and tax preferences of $25,000 in 2015. Annie is single and takes a $4,000 personal exemption for herself only. What is Annie's AMT for 2015?

Question 22

If an individual is classified as an employee, the employer is required to withhold the employee's share of the FICA tax and to provide a matching amount.

Question 23

John has $55,000 net earnings from a sole proprietorship. John is also employed part-time by a major corporation and is paid $25,000. John's self-employment tax (rounded) for 2015 is

A) $3,886.
B) $4,208.
C) $7,771.
D) $8,415.

Question 24

Hong earns $127,300 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Hong's self-employment tax for 2015?

A) $268
B) $290
C) $1,412
D) $1,530

Question 25

A self-employed individual has earnings from his business of $300,000. For the earnings in excess of the $118,500, he will only have to pay the 2.9% Medicare tax.

Question 26

Ava has net earnings from self-employment of $125,000. She also earned salary of $170,000 from a job held earlier in the year. How much Additional Medicare Tax will be owed on the self-employment income?

A) $0
B) $769
C) $855
D) $3,625

Question 27

Self-employment taxes include components for

A) Medicare hospital insurance and SUTA.
B) Social Security and FUTA.
C) FICA and FUTA.
D) Social Security and Medicare hospital insurance.

Question 28

One-half of the self-employment tax imposed is allowed as a for AGI deduction.

Question 29

When a husband and wife file a joint return and both have self-employment income, the self-employment tax must be computed separately.

Question 30

Lavonne has a regular tax liability of $13,294 on taxable income of $70,000. She also has tax preferences of $25,000 and positive adjustments attributable to limitations on itemized deductions of $15,000. Lavonne is single and takes a $4,000 personal exemption for herself only. Lavonne's alternative minimum tax for 2015 is

A) $0.
B) $2,410.
C) $15,704.
D) none of the above.

Question 31

Jorge has $150,000 net earnings from a sole proprietorship. Jorge's self-employment tax (rounded) for 2015 is

A) $18,711.
B) $22,950.
C) $21,194.
D) None of the above.

Question 32

Self-employed individuals are subject to the self-employment tax if their net earnings are more than the personal exemption amount.

Question 33

Suzanne, a single taxpayer, has the following tax information for the current year. • Charitable contribution of real property with a FMV of $25,000 (adjusted basis $20,000) for which a $25,000 deduction was taken for regular tax.
• Research and experimental expenses of $40,000 deducted in full for regular tax.
Suzanne's total tax preferences and adjustments equals

A) $5,000.
B) $36,000.
C) $41,000.
D) $45,000.

Question 34

A wage cap does not exist for which of the following self-employment taxes?

A) Social Security tax
B) FICA
C) FUTA
D) Medicare hospital insurance

Question 35

If an individual is an employee and also has self-employment income, the maximum tax base for computing self-employment tax is reduced by the wages that are subject to the FICA tax.

Question 36

In computing AMTI, all of the following must be added back except

A) home mortgage interest (on mortgage in effect since home was purchased).
B) state income taxes.
C) unreimbursed employee business expenses.
D) property taxes on an individual's home.

Question 37

George and Meredith who are married, have a regular tax liability of $22,838 based on regular taxable income of $125,000. This year they generated tax preferences of $25,000, and positive adjustments attributable to limitations on itemized deductions of $18,700. In determining regular taxable income, they had claimed $12,000 of personal and dependency exemptions for themselves and their 20-year old dependent daughter. What is George and Meredith's alternative minimum tax for 2015?

Question 38

Rex has the following AMT adjustment factors: -Depreciation of real property acquired in 1996 using MACRS is $22,000 while depreciation for AMT purposes is $15,000.
-R&E expenditures amounting to $60,000 are expensed.
The net adjustment is

A) $7,000.
B) $54,000.
C) $61,000.
D) $67,000.

Question 39

If an individual is liable for self-employment tax, a portion of the self-employment tax is

A) a for AGI deduction.
B) from AGI as an itemized deduction.
C) a Schedule C business expense.
D) nondeductible.

Question 40

Joan earns $110,000 in her job as a physician's assistant. She also has her own business selling cosmetics. This business generated $10,000 of earnings. What is Joan's self-employment tax for 2015?

A) $1,530
B) $1,314
C) $1,412
D) $268

Question 41

All of the following are self-employment income except

A) net income of a sole proprietorship.
B) dividends received by a corporate shareholder.
C) fees received for serving as a director of a corporation.
D) distributive share of partnership income from a partnership operating a business.

Question 42

The general business credits are refundable credits.

Question 43

Jay and Cara's daughter is starting her freshman year of college. Jay and Cara will be able to claim the American Opportunity Tax Credit for a percentage of the cost of tuition, required fees and course materials, but the room and board charges will not qualify for the credit.

Question 44

Taxpayers with income below phase-out amounts are allowed a child credit of $1,000 for each qualifying child under age 18.

Question 45

For purposes of the limitation on qualifying expenses for the child and dependent care credit, a spouse who is either a full-time student or is incapacitated is deemed to have earned income of $250 per month, or $500 per month if there are two or more qualifying individuals in the household.

Question 46

Lara started a self-employed consulting business in the last part of the year and earned $60,000 of self- employment income. She had been employed as manager in a consulting firm prior to starting her own business and had earned $175,000.
(a) What is Lara's Additional Medicare Tax for 2015, if any?
(b) What is Lara's deduction for AGI for the Additional Medicare Tax?

Question 47

The qualified retirement savings contributions credit is based on a maximum contribution of $2,000.

Question 48

Nonrefundable credits may offset tax liability but may not result in additional payments to the taxpayer.

Question 49

To claim the Lifetime Learning Credit, a student must take at least one-half of a full-time course load during the year.

Question 50

A credit for rehabilitation expenditures is available to a business for the purchase price of a building originally placed in service before 1936.

Question 51

Sonya started a self-employed consulting business in the last part of the year and earned $40,000. She had been employed as manager in a consulting firm prior to starting her own business and had earned $125,000.
(a) What is Sonya's self employment tax for 2015?
(b) What is Sonya's deduction for AGI for the SE tax?

Question 52

The child and dependent care credit provides relief for working taxpayers who pay for care for younger children or an incapacitated dependent or spouse.

Question 53

The adoption credit based on qualified adoption expenses is generally allowed in the year the adoption is finalized.

Question 54

Qualified tuition and related expenses eligible for the American Opportunity Tax Credit are limited to those incurred the first two years of postsecondary education.

Question 55

All of the following statements regarding self-employment income/tax are true except:

A) The self-employment tax is imposed on net earnings from self-employment over $400.
B) Self-employment tax is computed separately for married individuals filing joint returns.
C) Independent contractors are subject to self-employment tax on the amount of net earnings from the self-employment activity.
D) Employees who have a business in addition to their regular employment are not subject to the self-employment tax since FICA is withheld on their wages.

Question 56

In lieu of a foreign tax credit, a taxpayer may elect to take a deduction for foreign taxes paid or accrued.

Question 57

For purposes of the child and dependent care credit, qualifying employment-related expenses cannot include payments to a relative.

Question 58

The foreign tax credit is equal to the smaller of foreign taxes paid or accrued in the tax year or the portion of the U.S. income tax liability attributable to the income earned in all foreign countries.

Question 59

Tanya has earnings from self-employment of $240,000, resulting in self-employment tax of $21,122 and Additional MedicareTax of $360. Due to these taxes, Tanya will be allowed a deduction for AGI of

A) $10,741.
B) $21,482.
C) $10,561.
D) $21,122.

Question 60

Nonrefundable personal credits cannot offset AMT.

Question 61

The nonrefundable disabled access credit is available to eligible small businesses for expenditures incurred to make existing business facilities accessible to disabled individuals.

Question 62

Mark and Stacy are married, file a joint return, and have one child, age 3. Their combined AGI is $55,000. Mark and Stacy incur $3,500 of child-care expenses during the current year. Mark's employer reimburses him $1,500 under a qualified dependent care assistance plan. The child and dependent care credit is

A) $300.
B) $600.
C) $700.
D) $1,200.

Question 63

Joe, who is single with modified AGI of $84,000, is sending his son to his first year of college. The total tuition and related payments during the year amounted to $18,000. Joe has not taken advantage of any other type of tax benefit related to educational expenses. His American Opportunity Tax Credit is

A) $ 0.
B) $1,000.
C) $1,500.
D) $2,500.

Question 64

Bud and Stella are married, file a joint return, and have one child, age 3. Their combined AGI is $35,000. Bud and Stella incur $3,500 of child-care expenses during the current year. The child and dependent care credit is

A) $600.
B) $700.
C) $750.
D) $875.

Question 65

A taxpayer's tentative minimum tax exceeds his net income tax so he will be paying the alternative minimum tax this year. The taxpayer has a sole proprietorship through which he has earned general business credits. The taxpayer can reduce his AMT to the extent of his general business credits.

Question 66

Nonrefundable tax credits

A) only offset a taxpayer's tax liability.
B) may only be used if the taxpayer is receiving a refund.
C) can be carried back two years and carried forward 15 years if they exceed tax liability in the current year.
D) allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 67

The earned income credit is available only to taxpayers with qualifying children.

Question 68

The maximum amount of the American Opportunity Tax Credit for each qualified student is

A) $1,500.
B) $2,000.
C) $2,500.
D) $3,000.

Question 69

Marguerite and Josephus have two children, ages 13 and 10. Their modified AGI is $120,500.What is their child tax credit?

A) $900
B) $1,000
C) $2,000
D) None of the above.

Question 70

Timothy and Alice, who are married with modified AGI of $90,000, are sending their daughter to her first year of college. Their total tuition and related payments during the year amounted to $13,000. In addition, their daughter received a $10,000 scholarship to cover tuition. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit is

A) $2,000.
B) $2,250.
C) $2,500.
D) $3,000.

Question 71

Lee and Whitney incurred qualified adoption expenses in 2014 of $2,000, and then incurred $7,000 more in 2015 when the adoption of their child became final. Their 2014 AGI was $120,000 and their 2015 AGI was $140,000. The allowable adoption credit is

A) $ 7,000 in 2015.
B) $ 9,000 in 2015.
C) $13,400 in 2015.
D) $2,000 in 2014 and $7,000 in 2015.

Question 72

Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned income is $35,000 and Alexandra's earnings from a part-time job are $5,000. What is the amount of the qualifying expenses for purposes of computing the child and dependent care credit?

A) $3,000
B) $5,000
C) $5,500
D) $6,000

Question 73

Margo and Jonah have two children, ages 13 and 17. Their modified AGI is $120,500.What is their child tax credit?

A) $450
B) $900
C) $1,000
D) $2,000

Question 74

Research expenses eligible for the research credit include costs that are incident to the development or improvement of a product or component.

Question 75

The earned income credit is refundable only if a tax has been withheld.

Question 76

Marvin and Pamela are married, file a joint return, and have two children, ages 9 and 11. Their combined AGI is $65,000. Marvin's earned income is $40,000; Pamela's is $25,000. They incur $6,500 of child-care expenses to enable them to be employed during the current year. Their child and dependent care credit is

A) $1,200.
B) $1,300.
C) $1,800.
D) $6,000.

Question 77

Evan and Barbara incurred qualified adoption expenses in 2014 of $6,000, and then incurred $9,000 more in 2015 when the adoption of their child became final. Their 2014 AGI was $110,000 and their 2015 AGI was $100,000. The allowable adoption credit is

A) $13,400 in 2015.
B) $15,000 in 2015.
C) $6,000 in 2014 and $7,400 in 2015.
D) $6,000 in 2014 and $9,000 in 20154.

Question 78

Which statement is correct?

A) Tax credits reduce tax liability on a dollar-for-dollar basis.
B) Tax deductions reduce tax liability on a dollar-for-dollar basis.
C) The benefit of a tax credit depends on the taxpayer's marginal tax rate.
D) Tax deductions are less valuable for high-income taxpayers than for low-income taxpayers.

Question 79

Refundable tax credits

A) only offset a taxpayer's tax liability.
B) may only be used if the taxpayer is receiving a refund.
C) have all expired but may be reinstated with new tax legislation.
D) allow the excess over the taxpayer's tax liability to be paid to the taxpayer.

Question 80

Jeffery and Cassie, who are married with modified AGI of $90,000, are sending their son to his first year of college. Their total tuition and related payments during 2015 amounted to $5,500. They have not taken advantage of any other type of tax benefit related to educational expenses. Their American Opportunity Tax Credit for 2015 is

A) $1,500.
B) $2,000.
C) $2,500.
D) $5,000.